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Bidding War Heats Up For Low U.S. Corn Supplies

Abidding war is heating up among users of corn in the United States as livestock feeders and ethanol makers scramble to lock in supplies before extremely low stocks run dry by this summer.

And it could escalate even more with any delay in harvesting the crop in the flood-ravaged U.S. South, or if China steps into the market to buy the grain held over from last year’s harvest, as persistently rumoured.

Corn supplies are forecast to fall to their lowest level in 15 years this summer in the U.S., the world’s top exporter of the grain. Those holding stocks, like commercial grain companies, could reap handsome profits ahead of the Midwest harvest in September.

But those who have sold corn they do not own, such as resellers, could face losses if they are unable to deliver.

In markets such as Decatur, Illinois and Clinton, Iowa, published spot cash corn prices have risen a few cents above CBOT July futures for the first time in several years.

Also, the average posted bid at interior locations for corn delivered in August is at a five-cent discount to CBOT September futures. That’s the smallest average discount in at least five years, said Cody Bills, a broker with Grain Hedge, a research firm in Bozeman, Montana.

But behind the scenes, brokers say middlemen and small users such as independent feed mixers have been paying much higher prices – 50 cents or even $1 above CBOT July futures.

“Most (eastern) Midwest corn sales are occurring well above published bids as end-users try to keep quiet what their need for corn is and where the market is,” research company AgResource Co. said in a note to its clients.

Corn supplies are typically tighter in the eastern Midwest than in the western section, and especially so this year after 2010 yields suffered from the weather.

“One hundred-plus (cents) over (CBOT futures), that knocked everybody’s socks off,” said Diana Klemme, vice-president of Grain Services Corp., referring to a rumoured purchase by an eastern feed mill recently.

Farmers have sold most of last year’s harvest, and are clinging to the remainder until they grow more confident about prospects for the new crop, said Chad Hart, an agricultural economist with Iowa State University.

“They are hanging on to it for dear life,” Hart said.

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